April 28 (Bloomberg) -- Hypo Alpe-Adria-Bank International
AG was in a “catastrophic” state before Bayerische Landesbank
acquired it, Hypo Alpe’s convicted ex-chief executive officer
said at a trial of top BayernLB managers facing charges for
their roles in the takeover.

“The bank’s situation in mid-2006 was catastrophic to say
the least,” Wolfgang Kulterer, 60, ex-CEO and supervisory board
chairman of Hypo Alpe told a court in Munich today. BayernLB’s
then CEO Werner Schmidt was “discouraged by that” from
investing in the lender at a meeting at the time because of its
difficult situation following undisclosed losses on swaps,
Kulterer said.

Schmidt is among seven former BayernLB executives on trial
over the purchase of Austria’s Hypo Alpe one year later. The
acquisition led to 3.7 billion euros ($5.1 billion) of losses at
the Munich-based bank when Hypo Alpe was nationalized by Austria
to avert its collapse in 2009.

Prosecutors allege they didn’t inform the state-owned
lender’s administrative board correctly and overpaid by 550
million euros when they purchased a majority stake of
Klagenfurt, Austria-based Hypo Alpe for 1.63 billion euros in
May 2007.

They are charged with “breach of trust,” a criminal
offense in Germany that punishes misuse of other people’s money.
All of them deny the charges.

Kulterer learned about BayernLB’s interest in buying Hypo
Alpe at a meeting with Schmidt, Tilo Berlin and others in Munich
at the end of January 2007, said Kulterer, who was sentenced to
a total of 6 1/2 years in jail in three court cases in Austria
dealing with his role in the Hypo Alpe’s near-failure.

Before that meeting, BayernLB had lost the bidding for
Vienna-based Bawag PSK Bank, a defeat that prosecutors argue let
executives rush the deal to buy Hypo Alpe without properly
assessing risks.